Canadian Economy Contracts by 0.3% in October, Marking Steepest Decline Since Late 2022

Canadian Economy Sees Significant Contraction in October

The Canadian economy experienced a notable downturn in October 2025, with real gross domestic product (GDP) shrinking by 0.3%. This contraction, reported by Statistics Canada, represents the steepest monthly decline since December 2022, reversing gains made in previous months and exceeding analysts' expectations. The slowdown was widespread, affecting both goods-producing and services-producing industries across the country.

Manufacturing Sector Leads Economic Pullback

The primary driver of October's economic contraction was a significant pullback in the manufacturing sector, which saw its output decrease by 1.5%. This marks the fourth decline in five months for the sector. Within manufacturing, durable goods industries contracted by 2.3%, largely due to a 6.9% decline in machinery manufacturing. Additionally, wood product manufacturing fell by 7.3%, its largest decline since April 2020, partly attributed to new U.S. tariffs on Canadian lumber that took effect on October 14.

Beyond manufacturing, other goods-producing industries also faced challenges:

• The mining, quarrying, and oil and gas extraction sector shrank by 0.6%.
• The construction sector decreased by 0.4%, marking its first decline in six months, with residential building construction falling for the third consecutive month.

Broader Weakness Across Services and Public Sectors

The economic slowdown was not confined to goods production. Services-producing industries also contracted by 0.2% in October. Several factors contributed to this:

• Activity at the offices of real estate agents and brokers was down 6.8%, representing its fourth consecutive decline.
• The public sector aggregate saw a 0.3% decline, influenced by a province-wide teachers' strike in Alberta and rotating strikes by Canada Post workers.

Despite these widespread declines, some sectors did show growth, such as retail trade, which grew by 1.2%, its largest growth rate since January 2023.

Economists Weigh In on Future Outlook

Economists have commented on the implications of October's data. CIBC senior economist Andrew Grantham noted that the Canadian economy was 'starting to struggle again early in the fourth quarter' and that the GDP data likely points to a modest 0.5% annualized contraction for the fourth quarter, which 'will dampen bets for interest rate hikes in 2026'. TD economist Marc Ercolao stated that the overall contraction was 'in line with expectations' and anticipates 'subdued' economic growth over the next quarter or two before a gradual recovery. BMO senior economist Robert Kavcic described the situation as 'pretty soft momentum to start off Q4'.

Looking ahead, advance estimates from Statistics Canada suggest a slight rebound, with real GDP by industry pointing to a 0.1% increase in November.